US regional banks resumed their slide on Thursday as the industry’s worst crisis since 2008 rumbled on, with California’s struggling lender PacWest exploring a possible sale.
Shares in PacWest fell more than 40 per cent after the opening bell on Wall Street after the lender said it had been approached by potential partners and investors over a potential sale. Fellow regional lenders Western Alliance and Metropolitan Bank fell 20 per cent and 8 per cent respectively in choppy trading.
The KBW regional banking index lost 4 per cent in early dealings.
Silicon Valley Bank, Signature and First Republic have all collapsed since March, with the KBW Regional Banking index down 31 per cent in the past three months.
First Horizon’s share price, meanwhile, tumbled 40 per cent after the Memphis-based lender and Canada’s TD Bank said regulatory hurdles meant they had mutually agreed to terminate a planned merger.
The S&P 500 slid 0.7 per cent overall and the tech-heavy Nasdaq lost 0.6 per cent.
On Wednesday, the Federal Reserve raised the federal funds rate to a new target range of 5 to 5.25 per cent, the highest level since mid-2007. The Fed’s latest statement removed previous guidance stating additional monetary tightening “may be appropriate” and emphasised its policy approach would depend substantially on economic data.
Speaking after the policy decision, chair Jay Powell said the central bank still expected inflation would take time to reach its target range. “We on the committee have a view that inflation is going to come down not so quickly . . . if that forecast is broadly right, it would not be appropriate to cut rates,” he said.
Analysts said the changes to the Fed’s statement could mark the end of the current tightening cycle. But while markets have priced in several rate cuts before the end of the year, opinions were mixed on the likelihood of imminent easing while inflation lingered.
“A slowdown, or even a mild recession, may not be sufficient to convince the Fed to reverse policy course soon,” said Tai Hui, a market strategist at JPMorgan Asset Management.
Ray Sharma-Ong, investment director for multi-asset investment solutions at Abrdn, said banking sector issues — such as the recent failure of First Republic Bank — were unlikely to pose a systemic threat, but tightening credit conditions could weigh heavily on US growth and force the Fed to take supportive action.
“With the Fed’s forward guidance . . . indicating a strong shift towards data dependence, we expect the Fed to cut rates when a recession occurs,” said Sharma-Ong.
Across the Atlantic, Europe’s region-wide Stoxx 600 was down 0.6 per cent after the European Central Bank raised rates by a quarter percentage point as expected to 3.25 per cent in a move that marks a slowdown from consecutive half-point rises this year. The euro was 0.2 per cent lower against the dollar at $1.103.
The headline rate of eurozone inflation rose for the first time in six months to 7 per cent in the year to April, though core inflation dipped for the first time since June 2022.
